Analysis | Behind the Myth of China’s Great Technology Grab

For all the concern over China’s targeting of foreign intellectual property, how much forced transfer of leading-edge technology has really happened?

By the looks of the Chinese auto industry, hardly any. If there has been, then Beijing has precious little to show for it in a market of 25 million cars a year.

Take the case of Brilliance China Automotive Holdings Ltd. The Hong Kong-listed company has lost 53 percent of its value since news broke earlier this year that BMW AG was taking a majority stake in their joint venture. The German luxury carmaker was the first foreign auto partner to jump in after Beijing removed ownership caps.

Their 15-year-old venture, BMW Brilliance Automotive Ltd., has been a lucrative business. Average daily unit sales rose 18 percent from a year earlier in the first two weeks of December, amid an auto market where demand has been plummeting. BMW Brilliance, which already makes some models solely for China, plans to produce more vehicles locally and import fewer.

None of BMW’s luster has rubbed off on its partner. Since the venture started, Brilliance’s non-BMW sales growth has been dismal. Sales of Brilliance-brand cars have slumped over the past couple of years to just a fraction of BMW sales.

Analysts now value the Brilliance business at next to nothing. Small wonder, then, that the company’s stock price tanked when BMW raised its holding in their venture.

This begs a question: How was Brilliance China not able to acquire the technology to produce a successful car itself, despite having a top-tier partner and majority control of their venture for 15 years?

The reality is that overseas automakers have a well-honed strategy to safeguard their most advanced technology and keep Chinese competitors at bay. BMW began construction of its joint-venture plant in Dadong, in the northeastern city of Shenyang, in 2003 – but didn’t build an engine plant in China until 2012. It opened a second factory to produce three- and four-cylinder petrol units for the Chinese market in 2016 – as many as three years after starting production of those engines in Germany. BMW’s eco-friendly light metal foundry, which does metal casting, came to China seven years after its Bavarian equivalent opened.

At the same time, BMW has managed to cater to the local market, building China-specific cars and increasing the range of models it produces. The German automaker will now manufacture electric cars in the country.

Other companies have used a similar playbook. Toyota Motor Corp., for instance, is preparing to share its hybrid car-engine technology with China, Bloomberg News reported in September. While that may have looked like a scary precedent for carmakers, the fact is that hybrids are losing their sheen as the auto world focuses on an all-electric future. Toyota has been losing global market share. What better way to squeeze out a few more years of returns on a technology that it mastered more than a decade ago?

Remarkably, such issues formed the basis of the trade spat between the U.S. and China. In March this year, the Office of the U.S. Trade Representative published a report documenting China’s “unfair technology transfer regime for U.S. companies.” The report highlighted the auto industry as an example where it said forced technology transfers are rampant. China’s electric vehicle rules present “a clear case in the electric vehicle sector that you’re simply not going to be able to sell that product in China unless that local partner has mastered the ability to leverage the technology and take it to produce it going forth,” it said, citing the testimony of a U.S trade association.

An updated November report said China’s automotive policy may exacerbate pressure on overseas automakers, ignoring the fact that most have done well in the country. For those that haven’t, a flawed strategy rather than forced technology transfers has been the reason.

This isn’t to defend China’s practices or policies on trade and investment. However, there are important distinctions between alleged hacking, espionage, restrictions on foreign investment, unfair trade policies, and theft.

Much as with the Made in China 2025 plan, worries about China pulling ahead of its industrial rivals are misplaced. If anything, the nation’s ham-handed approach is killing its ability to innovate and secure a place on the global technology stage.

To contact the author of this story: Anjani Trivedi at atrivedi39@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.